Thursday, August 11, 2011

The Department of Justice and four states on Monday filed a multibillion-dollar fraud suit against the Education Development Management Corporation (EDMC), the nation’s second-largest for-profit college company, charging that it was not eligible for the $11 billion in state and federal financial aid it had received from July 2003 through June 2011.

An EDMC subsidiary,the Art Institute of Wisconsin, recently began operations in Milwaukee's Third Ward, in close proximity to the Milwaukee Institute of Art and Design (MIAD). It is one of several for-profit colleges, including the notorious Everest College, that have recently opened branches in the city.

The Art Institute of Wisconsin anchored a controversial development that received $6.5 million in federal New Market tax credits from the Milwaukee Economic Development Corporation. I had written a letter in opposition to subsidizing this development with New Market tax credits because they are designed to promote development in poor communities, not gentrified areas like the Third Ward, and because of the large number of lawsuits against EDMC alleging unscrupulous business practices.

While the civil lawsuit filed earlier this week is one of many raising similar charges against the expanding for-profit college industry, the case is the first in which the government intervened to back whistle-blowers’ claims that a company consistently violated federal law by paying recruiters based on how many students it enrolled. The suit said that each year, Education Management falsely certified that it was complying with the law, making it eligible to receive student financial aid.

“The depth and breadth of the fraud laid out in the complaint are astonishing,” said Harry Litman, a lawyer in Pittsburgh and former federal prosecutor who is one of those representing the two whistle-blowers whose 2007 complaints spurred the suit. “It spans the entire company — from the ground level in over 100 separate institutions up to the most senior management — and accounts for nearly all the revenues the company has realized since 2003.”

Education Management, which is based in Pittsburgh and is 41 percent owned by Goldman Sachs, enrolls about 150,000 students in 105 schools operating under four names: Art Institute, Argosy University, Brown Mackie College and South University.